Interest Groups Gain In Election Cash Quest

By: Wall Street Journal

Analysis Shows Giving To Parties Has Dipped
By BRODY MULLINS

WASHINGTON — One of the defining features of the 2004 presidential campaign was the devastating attack on Sen. John Kerry by an obscure group called the Swift Boat Veterans for Truth. In the years since, such independent political groups have only grown stronger, and they are poised to play an even bigger role in the 2008 elections.

Political groups unaffiliated with the two major parties account for an increasingly large share of spending on federal campaigns — 19% of the total in 2006, up from just 7% in 2000, according to an analysis of campaign-finance data by The Wall Street Journal. They now are horning in on crucial campaign activities once dominated by the parties, such as buying ads and getting out the vote.

In Iowa, independent groups are whipsawing voters with a range of conflicting messages. An organization called Common Sense Issues has funded automated phone calls backing former Arkansas Gov. Mike Huckabee and criticizing his chief Republican rivals. The Club for Growth, an antitax group, is working to defeat Mr. Huckabee with attack ads.

On the Democratic side, an organization called the American Federation of Teachers AFL-CIO Committee on Political Education has spent $250,000 on radio ads in Iowa backing Sen. Hillary Clinton. An environmental group called Friends of Earth Action is running ads against Sen. Clinton.

Over the past four years, the national Democratic and Republican parties have raised and spent less on elections than during the prior four years, when adjusted for inflation. At the same time, independent political groups have more than doubled their spending, and have begun to rival the parties as an election-season financial force, the Journal’s data analysis shows.

The shift, largely the result of campaign-finance laws intended to curtail big-money donations to parties, could further polarize the American political landscape. Because the Republican and Democratic parties aim to appeal to broad swaths of the electorate, they tend to be moderating forces in politics. That isn’t true of the independent groups, which range from the Sierra Club and the U.S. Chamber of Commerce to fringe groups like Swift Boat Veterans for Truth, which disbanded after the 2004 election. They often pursue narrower agendas or causes further out on the political spectrum.

The nonprofit groups are financed by wealthy individuals, corporations, labor unions and other interest groups. Unlike the national parties, they face no limits on how much money they can take in from contributors. They often don’t have to disclose their donors’ names until months after an election — if at all.

During the 2000 election cycle, such outside groups spent at least $260 million on presidential and congressional races, one-fifth as much as was spent by national political parties, according to the Journal analysis of campaign data provided by the Federal Election Commission and two nonpartisan organizations that track political spending. During the 2006 midterm elections, these outside groups spent about $600 million, almost two-thirds as much as was spent by the Republican and Democratic parties, the data indicate. Candidates themselves still account for the biggest piece of spending — a bit less than half.

Overall, the amount of money poured into each two-year election cycle continues to climb. Data from the FEC and several groups that track campaign finance indicate that total spending during presidential-election cycles rose from $2.8 billion in 1995-96 to $3.6 billion in 1999-2000 to $4.8 billion in 2003-04. This year and next, it is expected to hit $6 billion, political strategists say.

Nonparty political organizations date back many years. The nation’s founding fathers, in fact, considered it inevitable that outside political factions would attempt to influence the government.

The growing clout of such groups is an unintended consequence of a 2002 law intended to reduce the influence of money in politics. The Bipartisan Campaign Reform Act of 2002, championed by Arizona Republican Sen. John McCain, took aim at so-called soft-money donations to political parties. Soft money had become a major source of funding for both parties, which used the donations to support individual campaigns. The law barred the parties from accepting large contributions from wealthy individuals, corporations, labor unions and other interest groups.

The law elevated the importance of “bundlers” — fund-raisers who gather contributions from friends, employees and family and pass them on in lump sums to political campaigns. Some bundlers had previously given soft money to national parties. The law also prompted donors to turn to political organizations not tied directly to the parties, many of them offshoots of established special-interest groups.

There are several distinct classes of independent political groups, each taking its name from the section of the Internal Revenue Service code under which it is organized. Most are known as 527 organizations. Although 527 groups are recognized as political, they are prohibited from explicitly calling for the election or the defeat of candidates. Consequently, they often promote or attack candidates without instructing people to vote for or against them.

Another class of independent groups is growing even faster — and is flying further under the radar. These groups are organized under section 501c of the tax code, which gives tax-exempt status to nonprofit groups. One category, called “social welfare,” is governed by section 501(c)4. Those groups can urge people to vote for or against a candidate — so long as campaigning isn’t their primary purpose, and they don’t accept money from corporations or labor unions. Labor groups are governed by section 501(c)5; business groups by section 501(c)6. These 501(c) organizations don’t have to disclose their donors.

Data from two nonpartisan organizations that track campaign finance — the Center for Public Integrity and the Center for Responsive Politics — show that election-cycle spending by 527 organizations rose from $171 million in 2000 to $316 million in 2002 to $653 million in 2004. Spending dropped to $443 million for the 2006 midterm elections. Spending on midterm elections typically runs lower than on presidential elections.

The new groups are pulling in money that the major parties used to receive. Before the 2002 crackdown, financier George Soros donated more than $200,000 to the Democratic Party. Since then, he has given at least $20 million to the 527 organizations. American Financial Group Inc. Chairman Carl Lindner previously donated more than $1.5 million in soft money to the Republican Party. In 2006, he gave about $500,000 to a 501(c)4 group called Common Sense Ohio, which sought to re-elect several Republican senators. In the last four years, Mr. Lindner has donated $3.6 million to outside groups backing Republican candidates, according to campaign-finance documents.

Because the IRS doesn’t require 501(c) organizations to detail election spending or to list contributors, it’s difficult to track their political activity. The Journal analyzed data on 30 separate 501(c) groups active in elections from 2000 to 2006, culled from a variety of sources. The data show that the 30 organizations spent at least $155 million on the 2006 elections, nearly twice what they spent in 2000.

The 501(c) organizations are likely to become even more important in the 2008 election. After the 2004 election, the FEC sought to crack down on 527 organizations that violate the IRS rule against calling for the election or the defeat of any candidate. Now, several large 527 groups are setting up 501(c)4 social-welfare organizations, which are allowed to back candidates explicitly.

Scott Reed, a Republican strategist, says that for political campaigns, using 501(c)4 organizations is “now the most effective way to go because donors are safe and don’t need to be disclosed.”

The Club for Growth, the antitax group, used to use a 527 structure for its election work. But the FEC fined it earlier this year for stepping over the line barring explicit voting recommendations. During the current election cycle, the group is shifting the work to a 501(c)4 unit, which carries fewer restrictions. The new structure will make the organization “bigger, better and more effective,” said its president, Pat Toomey, in a letter to members. “We now have a significant new ability to run advertisements that directly call for the election or defeat of candidates.” Another advantage, Mr. Toomey noted, is that “unlike the past, your donations to the Club will not be disclosed to the public.”

The League of Conservation Voters, an environmental-advocacy group that was also fined by the FEC for its 527 spending, has made a similar move.

Another environmental group, Defenders of Wildlife, started a 501(c)4 organization before the 2006 election, partly to help wage a campaign to defeat California Republican Rep. Richard Pombo, then the chairman of the environment committee in the U.S. House. The group spent $2 million. Mr. Pombo lost the election. Rodger Schlickeisen, the group’s president, says it plans to spend $5 million this election on campaigns against four candidates, including Rep. Don Young, the Alaska Republican who once was chairman of the same environment panel.

While independent groups have been building clout, the national political parties have been losing election-spending power. In 2002, the national parties raised $591 million in soft money, which funded about half of their budgets for that year’s election cycle. (Figures used in this story have been adjusted for inflation.) Over the last four years, following the ban on soft money, the national parties have had about $200 million less to spend on campaigns, an 8% drop.

During the 2000 presidential election, the Republican and Democratic parties paid for 50% of advertising in the 70 largest cities, according to a study by the Wisconsin Advertising Project at the University of Wisconsin. In 2004, that figure fell to 17%. Outside groups accounted for 20% of the advertisements in the 2004 presidential campaign, double the amount of 2000, according to the project.

Democrats have led the charge toward using independent political organizations. Soon after the 2002 law took effect, several Democratic strategists, including Harold Ickes, a former top official with the Democratic Party, and Steve Rosenthal, who had run political operations for the AFL-CIO, met for dinner at BeDuCi’s restaurant in Washington. They worried that the Republican Party would adjust better than the Democrats in 2004 to the loss of soft money because it controlled the White House, and because President Bush knew how to rake in campaign cash, Mr. Rosenthal recalls.

The Democrats decided to create and coordinate a set of 527 organizations, such as America Coming Together and the Media Fund, which would essentially act like a shadow Democratic Party. The Democratic strategists raised $200 million from wealthy liberals, trial lawyers, labor unions and other traditional backers of the Democratic Party, and spent it on the campaign, according to campaign finance records. The Democratic National Committee spent $390 million on the election, according to campaign records.

All told, since the campaign-finance law took effect, the 527 organizations that support Democratic candidates have spent nearly three times as much money on elections than those backing Republicans, according to the Campaign Finance Institute. One reason for the disparity is that corporations, once the largest source of soft-money donations to the Republican Party, haven’t poured much money into 527s. Campaign-finance lawyers who advise 527 organizations say that corporations are concerned about getting involved with groups that run afoul of campaign-finance rules.

Democrats are expected to hold that lead during the 2008 cycle. Last month, two Democrats launched Fund for America, a 527 group that plans to raise at least $100 million to back the Democratic presidential nominee. Republicans say they are recruiting donors to match that amount.

Because they have their own agendas, outside organizations sometimes clash with one another, the national parties, even the candidates they support. Abortion-rights advocates say Democratic Party officials sometimes bristle when they fund political advertisements in support of candidates, because the ads focus attention on an issue that can alienate some voters. Naral Pro-Choice America plans to spend $10 million on the 2008 election cycle, double its budget for 2004. It hasn’t yet endorsed any presidential candidate.

Sen. Clinton has been both the beneficiary and the target of considerable spending by independent groups. Friends of the Earth Action, an environmental group backing former Sen. John Edwards, is attacking her for not taking a stand on a global-warming bill. Emily’s List, an organization that backs Democratic candidates who are pro-choice, has spent nearly $300,000 so far to support her in Iowa.

On the Republican side, the antitax Club for Growth has clashed with the Republican Party several times. Last year, the group campaigned against Republican Sen. Lincoln Chafee of Rhode Island because he had voted against several tax cuts. Mr. Chafee won his primary anyway, but lost to a Democrat in the general election.

This year, the group has been attacking Mr. Huckabee for supporting tax increases as Arkansas governor. “Call Mike Huckabee,” one ad instructs viewers. “Ask why he supported all those taxes.”

Common Sense Issues Inc., the group backed by American Financial Group’s Mr. Lindner in 2006, is funding automated phone calls to Iowa voters touting Mr. Huckabee and spreading negative information about his rivals.

Mr. Huckabee said the mudslinging approach of Common Sense Issues “violates the spirit of our campaign.” Patrick Davis, a former Republican Party consultant who is managing the independent campaign, says that he hasn’t spoken with Mr. Huckabee, “therefore we don’t know what the spirit of his campaign is.”